AgileHealthInsurance Report | 2015-11-19
Average premium rates for Obamacare plans increased by double digits from 2015 to 2016. Bronze plans, which are generally the least expensive type of Obamacare plan, had premium hikes of 11 percent in 2016.1 Given that term health insurance premiums were substantially less expensive than unsubsidized premiums for Obamacare bronze plans in the 2015 plan year,2 AgileHealthInsurance examined premiums for term health insurance and Obamacare plans to determine how prices compare in 2016.
Premiums for term health insurance and Obamacare marketplace plans were collected for male and female non-smokers ages 30, 40, and 50 in the most populous city in each of the 38 states that uses healthcare.gov in 2016. Premiums for Obamacare bronze plans, the least expensive type of Obamacare plan, were compared to term insurance plans with deductibles and out-of-pocket caps that were less than the average deductible and out-of-pocket cap for bronze plans.
Specifically, average premiums for Obamacare bronze plans were compared to average premiums for term insurance plans available on AgileHealthInsurance.com with individual deductibles no higher than $5,000, individual out-of-pocket caps no higher than $6,000, and lifetime maximums no lower than $1 million. Obamacare bronze plans have an average deductible of $5,731 and an average out-of-pocket cap of $6,639 for individual enrollees in 2016.3
Across ages and genders, term insurance plans were 25 percent less expensive than Obamacare bronze plans, with premiums averaging $65 less per month. Men and women age 30 had the greatest monthly premium savings of $134 and $105 respectively. On average 30-year-olds would pay 49 percent less for term insurance than for an Obamacare bronze plan. However, term insurance premiums for 50-year-olds were nearly the same as Obamacare premiums for 50-year-olds.
|Age||Average Obamacare Bronze Premium||Average Term Insurance Premium||Savings ($)||Savings (%)|
|Male Age 30||$243.40||$109.71||$133.69||54.93%|
|Female Age 30||$243.40||$138.04||$105.36||43.29%|
|Male Age 40||$273.36||$182.07||$91.29||33.40%|
|Female Age 40||$273.36||$220.79||$52.57||19.23%|
|Male Age 50||$382.51||$382.48||$0.03||0.01%|
|Female Age 50||$382.51||$378.27||$4.24||1.11%|
Term health insurance plans are not considered to be qualified health plans under the Affordable Care Act, so enrollees in term insurance plans have to pay the Obamacare uninsured penalty, unless they qualify for an exemption. However for younger enrollees, term insurance is often still less expensive than Obamacare, even including the cost of the uninsured penalty.
A 30-year-old with household income of $10,450 (the 2016 tax filing threshold) would be exempt from the uninsured penalty, so term insurance plans would still be 55 percent less expensive for males and 43 percent less expensive for females than Obamacare bronze plans. Even with a household income of $50,450, a 30-year-old male paying the uninsured penalty would still save $50 a month with term insurance and a 30-year-old female would save $22 a month.
|$10,450 Household Income||$20,450 Household Income||$30,450 Household Income||$40,450 Household Income||$50,450 Household Income|
|Average Obamacare Bronze Premium||$243.40||$243.40||$243.40||$243.40||$243.40|
|Average Term Insurance Premium for Female||$138.04||$138.04||$138.04||$138.04||$138.04|
|Average Term Insurance Premium for Male||$109.71||$109.71||$109.71||$109.71||$109.71|
|Savings for Female ($)||$105.36||$47.44||$47.44||$42.86||$22.03|
|Savings for Female (%)||43.29%||19.49%||19.49%||17.61%||9.05%|
|Savings for Male ($)||$133.69||$75.77||$75.77||$71.19||$50.36|
|Savings for Male (%)||54.93%||31.13%||31.13%||29.25%||20.69%|
There are a number of reasons why term insurance plans are less expensive than Obamacare plans, especially for younger enrollees. First, Obamacare plans have to accept all enrollees, regardless of pre-existing conditions or poor health. Since some enrollees may not be eligible for specific term insurance plans depending on their health status, they do not have to cover the costs of enrollees in poor health, so they can offer lower premiums.
Obamacare plans are required to cover health benefits including doctor visits, emergency care, maternity care, and care for abuse of alcohol and drugs. Term health insurance plans are not required to cover these benefits. Term health insurance plans also do not have to cover other medical services such as transplant services, preventive care, care for learning disorders or autism, or injuries caused by skydiving, participation in rodeo contests, or interscholastic organized competitive sports. Term health insurance plans also do not generally cover prescription drugs, but may offer prescription drug discount programs.
Younger enrollees have higher savings than older enrollees when they buy term insurance plans instead of Obamacare. Generally older people have higher health care costs than younger people. Under the Affordable Care Act the oldest enrollees cannot be charged premiums greater than three times the premiums charged to the youngest enrollees. While the measure protects older enrollees, it means that Obamacare premiums increased more for younger enrollees than older enrollees relative to the premium costs in the pre-reform market.5 Since term insurance plans do not have to adhere to the Affordable Care Act’s premium restrictions, they can charge premiums that reflect the health pool risks--lower premiums for younger enrollees and higher premiums for older enrollees. Moreover term insurance plans are not required to charge the same premiums for male and female enrollees, whereas Obamacare plans may not vary premiums by gender.
It is important to note that Obamacare enrollees are eligible to receive premium tax credits if their income falls below 400 percent of the federal poverty level, whereas term health insurance enrollees are not eligible for premium tax credits. Obamacare enrollees with incomes up to 250 percent of the federal poverty level are also eligible for cost-sharing reductions if they enroll in silver plans, the next least expensive type of Obamacare plans after bronze plans.
Term health insurance premiums, on average, are 49 percent less expensive than Obamacare bronze plan premiums for 30-year-olds. The term insurance plans included in this comparison are restricted to plans with individual deductibles no higher than $5,000, individual out-of-pocket caps no higher than $6,000, and lifetime maximums no lower than $1 million. This includes term insurance plans with out-of-pocket caps of $2,000 or less, whereas the lowest out-of-pocket cap for Obamacare bronze plans on the federal marketplace in 2016 is $5,825, since bronze plans are designed to pay 60 percent of covered health care costs for a standard enrollee population.
The cost difference between term insurance plans and Obamacare plans can be explained by the requirement for Obamacare plans to accept all enrollees regardless of poor health and pre-existing conditions, the differences in benefits between Obamacare and term insurance plans, and the requirement for Obamacare plans to restrict premium differences between younger and older enrollees. Term insurance enrollees may also have to pay the Obamacare uninsured penalty since term health insurance plans are not considered to be qualified health plans, but there are many exemptions from the penalty.
Since premium subsidies and cost-sharing reductions are only available for Obamacare enrollees, term insurance plans may be more expensive than Obamacare plans for people that qualify for subsidies. However for people that are ineligible for subsidies and for people exempt from the Obamacare uninsured penalty, term health insurance may be a less expensive option than Obamacare.
AgileHealthInsurance obtained premium quotes for 2016 Obamacare bronze plans and term health insurance plans with individual deductibles no higher than $5,000, individual out-of-pocket caps no higher than $6,000, and lifetime maximums no lower than $1 million. Premiums were quoted for men and women age 30, 40, and 50 in the most populous city in each of the 38 states using healthcare.gov in November 2015.
Data on Obamacare bronze plan premiums in 2016 was obtained from the QHP landscape file for the 2016 individual medical market. Data for term health insurance plans was obtained from the AgileHealthInsurance API and reflect the landscape of plans available through AgileHealthInsurance. The analysis assumes that the applicant would qualify for underwriting from the carrier.